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Nikita Sharma
Business News Expert
Asked a question last year

What can government do to restart India's ailing Economy?

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As the coronavirus pandemic spreads globally, it has caused economic devastation in its wake. India, too, has not been isolated from these economic shocks. While the RBI and the government are doing all that they can to restart the country’s growth engine, more needs to be done.

The government will need to borrow more to bridge the revenue and expenditure gap, as it is the only entity in the country that can pump a gigantic amount of liquidity within the system. This spending may help the country get back on track, even though the cost will be borne in the form of inflation, and a ballooning fiscal deficit.

Monetising deficit means RBI purchases government bonds in the primary market and prints more money to finance this debt. That used to be the norm till the later 1990s and the fiscal deficit was automatically monetised by the RBI. That practice was replaced with a system of ways and means advances (WMA) from April 1, 1997.

Some experts say that RBI’s monetising of the government's fiscal deficit may give rise to unproductive spending and may lead to higher inflation.

RBI governor Shaktikanta Das says “no view has been formed” on the issue yet, though he has said: “we are dealing with a pandemic superimposed on a slowdown. The response has to be a coordinated one.”